CMP Rs460, 12-mts Target: Rs475, Upside: 3.3%
Tata Communications reported solid 260bps yoy margin improvement on back of impressive 42% EBIDTA growth in data. Consolidated revenues declined 3.3% yoy as pricing continues to impact voice top line while data revenues grew 14% yoy. Voice margin recovered yoy and sequentially on cost optimization measures and voice FCF up 7% qoq to annualized US$66mn, in line with guidance range of US$60-70mn. Neotel deal would be closed in late Q4 FY17 amidst recovery in qoq revenues and EBIDTA. Core quarterly capex of US$66mn tracks annual guidance of US$250mn ex-data centre business. Tcom would remit ~Rs11bn to Tata Sons in Q2 as part of its proportionate obligation towards buyout of TTSL stake from Docomo. We keep FY18E data margin assumption intact at 23% and value the business on SOTP basis; Accumulate rating stays.
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